The issues are: Lebanon, the stability of the Sunni-led
Government and the role of Hezbollah therein; Iraq and Iran's
role therein; Iran's nuclear programme and its impactsenvironmental,
political, security and so onon its neighbours; and last
but not least, Palestine.[318]

The Iranian government's open and unreserved support
for Hezbollah stood in sharp contrast to the more cautious line
of the Arab governments in the Gulf and in Egypt and Jordan who
largely pronounced Hezbollah's action as 'reckless' in the early
days of the war Furthermore, if this campaign was ultimately
a proxy war between Tehran and Washington, as many commentators
in Iran and Washington insiders have surmised, then the fact that
mighty Israel was being reduced to that of the US' 'champion'
in the battle against Iran's much smaller Arab protégé
played out very badly in strategic terms for Israel's desire to
maintain its deterrence against hostile neighbours.

However, he noted that there was an even more serious
aspect to Iran's support for Hezbollah:

[T]he fact that in the eyes of the Arab masses Israel
(and by extension the US) in fact lost the war will have a much
bigger strategic implication for Iran's neighbours as Tehran's
neoconservatives begin to position themselves as the only force
able and willing not only to challenge the US-dominated status
quo but also to change the regional balance of power in favour
of 'the forces of Islam'.

Professor Ehteshami suggested that Iran had managed
to carve out a role for itself in the Arab world, "giving
it another platform" for the exercise of its power in the
Middle East. He noted that this power base in Lebanon was now
being reinforced through massive welfare spending projects in
the Shi'a areas.[320]

193. Dr Ali Ansari argued that Iran could not "direct"
Hezbollah in the way some suspect it can, using the analogy of
the relationship of the US to Israel.[321]
Professor Ehteshami agreed, noting that:

Iran has a very direct interest in the success of
Hezbollah as a political force, just as it has been nurturing
the other Shi'a organisation in LebanonAmal. Iran's interest
is to domesticate Hezbollah as much as it can.

However, he warned that the security element of the
relationship could not be ignored:

If Iran felt any threat from Israel, for instance
by way of pre-emptive strike on its nuclear capabilities, I think
that it would find it too difficult to resist the temptation to
use Hezbollah regionally.[322]

On the basis of this evidence, it is clear that Iran's
role in Lebanon is crucial to understanding the broader political
dynamics of the Middle East.

Professor Ehteshami expressed a similar sentiment
when he told us that "it always surprises me that people
express concern about Iran having influence in Iraq", noting
that this influence is culturally and socially rooted. Dr Ali
Ansari, referring to the Iran-Iraq
war of the 1980s, highlighted a strategic aspect beyond this cultural
relationship. He said that Iranians had made it,

clear that they had one single red line as far as
Iraq was concerned, which was that they would not allow a military
threat to emerge from the country again. I think that that is
a valid concern that they have in Iran; that is what they want
to do. Therefore, they will exercise a certain amount of influence.[324]

195. We have seen that the Government is now openly
speculating about the disturbing and negative influence of Iran
in Iraq. Dr Ansari told us that with regard to issues of "sabotage
and insurgency support", one is required to distinguish "between
elements of what we would call the formal Government and the Islamic
Revolutionary Guard Corps, which sometimes has a separate agenda."
However, he did acknowledge that the two were linked when he commented
that the ascendancy of Iran's President Ahmedinejad in 2005 let
the Revolutionary Guard "off the leash."[325]

196. We are particularly interested in this issue
of different agendas and power struggles within Iran itself, and
how this impacts on Iraq. Dr Ansari addressed differences of opinion
with regard to coalition forces in Iraq, telling us that:

There are two schools of thought within Iran on the
issue [ ] On one hand, they would rather not have permanent
American bases in Iraq; at the same time there is a range of views
in Iraq that say, 'The Americans should at least clear up the
mess they made and then they can go. Let's not get them out now.'
On the other hand, there are also thoselet us be honest
about itwho are extremely ideologically ill-disposed towards
the west [ ] who think this is a good opportunity to irritate
and harass them and force them out.[326]

197. In his written submission, Professor Ehteshami
warned how the situation in Iraq could affect the dynamic between
Iran and other states in the region. He argued that,

when one hears a high ranking Saudi official say
that 'Iraq is already a lost battle', then one is left with little
doubt that a much bigger crisis than the 2003 Iraq war itself
will be facing the region in the seasons to come. Without regional
co-ordination, or indeed a security dialogue between Tehran and
Washington, the drift in Iraq will deepen the chasm between Iran
and its Arab neighbours.[327]

198. In 2005, President Ahmedinejad notoriously remarked
that Israel should be "wiped off the face of the earth."[328]
He has also hosted a holocaust denial conference in Tehran. Professor
Ehteshami told us that the President's rhetoric has killed the
efforts (that were beginning to emerge under his predecessor,
President Mohammed Khatami) to "establish intellectually
Israel's right to exist."[329]
Dr Ansari argued that his pronouncements were aimed at "the
wider Arab world rather than the Iranian world", and that
he leaned towards "Islamist-populist" tendencies. He
noted that the holocaust conference had "engendered a certain
amount of very negative reaction in Iran" itself.[330]

199. Iran funds and politically supports the Hamas
movement in the Occupied Palestinian Territories.[331]
Professor Ehteshami told us about Iran's relationship with the
Palestinians:

Iran's reach has not come through just polemical
or ideological support for the Palestinians. For the first time,
there is a Government in the Palestinian Territoriesa Hamas-led
Governmentwho choose to make their first foreign trip to
Tehran and not to an Arab capital.

He told the Committee that Iran had supplanted the
EU as the biggest financial backer to the Palestinian Authority,
and that this had "not sat well with the Arab world",
in particular those states such as Saudi Arabia that have a large
stake in the Palestine issue and Egypt and Jordan, who "are
worried about how Iran could influence" their relations with
Israel. He argued that US pressure on Arab states not to deal
with Hamas had left an opening that Iran was able to exploit.[332]

200. Earlier in this Report, we outlined Saudi Arabia's
role in establishing the national unity Government in the Occupied
Palestinian Territories through the Mecca agreement. Given Saudi
Arabia's broad regional opposition to Iran, we asked Dr Gooderham
how Iran would react to the agreement. In his reply, he noted
that Iran has,

said from time to time that it would accept any outcome
to which the Palestinian people themselves were committed. Naturally,
we hope that it will abide by that and that, if a Government of
national unity are formed and their platform reflects the three
Quartet principles, Iran will not attempt to undermine that Government
and bring about their collapse.[333]

Professor Ehteshami warned the Committee that it
would be easy for Iran to oppose the Mecca agreement if it sensed
that Hamas was being coaxed into "changing sides."[334]
However, as we have documented in this Report, the EU and US did
not alter their relationship with Hamas following Mecca. Iran's
ability to influence Hamas was therefore not seriously challenged,
and indeed could have been increased.

201. There are fears that the events of June 2007
will only serve to strengthen Iran's influence with Hamas in the
Gaza Strip. The isolation faced by Hamas in the Arab world following
its forceful takeover arguably leaves it more reliant than ever
on its core political support. It remains to be seen how Iran
will seek to influence Hamas in the coming months.

203. The issue of Iran's nuclear programme also impacts
on its relationship with key Arab states. Professor Shai Feldman,
in his written submission, argued that following the Iraq war,
Iran was the dominant local power in the Gulf region.[336]
The Gulf Co-operation Council (GCC), an organisation comprising
of six Arab states, has expressed concern at Iran's nuclear development.
Professor Ehteshami wrote that in September 2006,

without a hint of irony, the GCC Secretary-General
used a major conference on the risks of nuclear pollution and
proliferation to call on the Arab world to join forces to develop
nuclear power for peaceful purposes.

He further argues that if Iran is able to develop
nuclear weapons unhindered, "it will have acquired a major
lead over all its neighbours in both geopolitical and geo-strategic
terms." This will represent a "major shift in power"
away from the Gulf Arab states towards Iran, and will impact on
all who rely on the Persian Gulf for energy supplies.[337]

204. Ultimately, Professor Ehteshami warned that
the key question now was whether Tehran would be able to develop,
"for the first time in Iran's modern history" an "uninterrupted
chain of alliances that would take its influence from Afghanistan
and Tajikistan to the east right across to Lebanon and Palestine
in the west."[338]
Dr Ansari made an interesting point when he argued that:

When we talk about Iran's growing regional influence,
one of the things that we have to bear in mind is that a lot of
this is a consequence of own goals that have been scored by various
parties in the Middle East.[339]

Whether it is Israel's perceived defeat in Lebanon,
the inability to sustain the national unity Government in the
Occupied Palestinian Territories, or the lack of planning for
the aftermath of the Iraq war, this argument appears to hold.

The Iranians certainly value the relationship with
the United Kingdom. There is a strong element of respect for what
the British can do politically. That is historically founded.
There is obviously also a great deal of cynicism as to what Britain
can do politically. That means that it is a relationship that
has to be worked on [ ]

There is clearly a huge amount that Britain can do,
and it can play a very positive role, but it needs to be done
very much with an eye on history.[343]

206. We asked our witnesses whether Iran saw the
UK more as a trans-Atlantic player or as a member of the European
Union. Professor Ehteshami replied:

I would say that it sees Britain in both roles. It
sees Britain as the United States' closest global ally alongside
Israel, which is a problem for Tehran. At the same time, being
America's closest ally apart from Israel is an opportunity. One
gets the interesting sense that Iran sees Britain much less as
a European Union power than as a transatlantic actor. It is that
perceived capacity that I think causes Tehran to give weight to
Britain's voice internationally.[344]

Dr Ansari believed that, given the variety of views
in Iran, different parts of the political spectrum viewed the
relationship with the UK in different ways:

The current Government in Iran, with Mr. Ahmadinejad,
has an ideological dislike of the United Kingdom'You
are the little Satan, but not a poor one.' That would be quite
difficult, but there is a range of opinions in Iran, particularly
in the previous Government and also among moderate conservatives
and others who would see some sort of relationship with Britain
as very positive.[345]

207. The UK is engaged with Iran over a number of
issues, including Afghanistan, the various crises in the Middle
East and Iran's nuclear programme. We were told by Dr Ansari that
"Iranians see everything in a holistic way. I do not think
that they separate those issues." He warned that "the
tendency of western analysts to categorise and compartmentalise
things does not work" when addressing the relationship with
Iran. However, Professor Ehteshami believed that there were specific
issues that could be addressed without addressing the whole. For
example, he told the Committee that the City of London is "crucial
to Iran's international trade" and that it has the potential
to be an important partner for Iran's business community.[346]

208. The US has no diplomatic relationship with Iran.
However, as noted earlier in this Report, it has begun to engage
with Tehran on the issue of Iraq in recent months. Simon McDonald
told the Committee that the US and the UK have differences in
their diplomatic approach to Iran:

We have not had press conferences. We are trying
to change Iranian behaviour. That is a central feature of our
dialogue with Tehran.

However, as noted elsewhere in this Report, he did
acknowledge that US policy was "evolving".[347]

209. We
conclude that Iran is rapidly increasing its influence and power
across the Middle East. It has demonstrated that it is able to
generate or exploit crises in a range of countries, thus furthering
its own interests. We conclude that it is vital that the UK and
the international community engage constructively and coherently
with Iran on these difficult issues. We will consider the challenge
of engagement, in particular on Iran's nuclear programme, in greater
depth in our report on Global Security: Iran.